-12-
Income Tax Regs. Section 1.6661-3(a)(2), Income Tax Regs.,
provides in part:
The substantial authority standard is less stringent
than a "more likely than not" standard (that is, a
greater than 50-percent likelihood of being upheld in
litigation) but stricter than a reasonable basis
standard (the standard which, in general, will prevent
imposition of the penalty under section 6653(a),
relating to negligence or intentional disregard of
rules and regulations). Thus, a position with respect
to the tax treatment of an item that is arguable but
fairly unlikely to prevail in court would satisfy a
reasonable basis standard, but not the substantial
authority standard.
In determining whether there is substantial authority, only
certain sources will be considered authority, including court
cases, temporary and final regulations construing the Code and
other statutory provisions, and administrative pronouncements
(including revenue rulings and procedures). Sec. 1.6661-3(b)(2),
Income Tax Regs.
In support of its reporting position in Galedrige I,
petitioner cites as substantial authority Rev. Rul. 86-149, 1986-
2 C.B. 67, and Rev. Rul. 59-329, 1959-2 C.B. 138, certain
sections of the Code and the regulations, and several court
cases. The weight of the authorities cited by petitioner depends
on their persuasiveness and relevance as well as their source.
See sec. 1.6661-3(b)(3), Income Tax Regs.
Rev. Rul. 86-149, supra, is not substantial authority for
petitioner's position. Rev. Rul. 86-149 addresses the issue of
whether a taxpayer engaged in the business of developing real
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